PCAOB Levies $2 Million Fine against Deloitte for Violation
By Jason Bramwell
Deloitte & Touche LLP was fined $2 million by the Public Company Accounting Oversight Board (PCAOB) on October 22 for permitting a former partner to perform activities as an "associated person" that were prohibited while he was subject to a PCAOB suspension order.
The Big Four firm was penalized for violating the Sarbanes-Oxley Act (SOX) and PCAOB rules for allowing Christopher Anderson, CPA, to continue activities related to preparing and issuing public company audit reports after he was suspended for one year by the PCAOB on October 31, 2008.
According to PCAOB Release No. 105-2013-008, Order Making Findings and Imposing Sanctions in the Matter of Deloitte & Touche LLP, Respondent, Anderson was issued the suspension order for violating PCAOB rules and auditing standards while he served as an engagement partner for Deloitte's audit of Navistar Financial Corporation's fiscal year 2003 financial statements. The PCAOB suspension order prohibited Anderson from being an "associated person of a registered public accounting firm."
On Tuesday, the PCAOB also ordered Deloitte to undertake certain remedial actions to ensure that similar violations do not occur in the future. The firm consented to the entry of the order without admitting or denying the board's findings.
"When the board suspends an auditor, it does so to protect investors," PCAOB Chairman James Doty said in a written statement. "Deloitte permitted the former partner to conduct work precluded by the board's order and put investors at risk."
The $2 million penalty against the firm equals the PCAOB's single-largest civil money penalty, which the board previously imposed in another disciplinary matter.
"Considering the magnitude of the penalty, firms should recognize the importance of abiding by the limitations imposed on a PCAOB-suspended auditor," Doty said.
The PCAOB found that, in anticipation of the suspension, Anderson was made a salaried director and transferred to an audit group in Deloitte's national office. After his transfer, Deloitte permitted the suspended auditor to become or remain an associated person by engaging in activities in connection with public company audits, such as developing firm-wide policies and audit guidance as well as participating in three national office consultations with public company audit engagement teams.
The PCAOB explained that Deloitte knew of the suspension order but permitted these activities to take place without the consent of the board or the US Securities and Exchange Commission.
"[SOX] and the board's rules specifically prohibit registered firms from allowing suspended or barred auditors from participating in the firm's issuer audit practice," Claudius Modesti, director of the PCAOB Division of Enforcement and Investigations, said in a written statement. "For investors to receive the benefit of those legal protections, all registered firms must take sufficient steps to ensure that suspended or barred auditors adhere to that requirement. As the PCAOB order demonstrates, failing to take such steps will result in the imposition of significant standards."
In an e-mailed statement to AccountingWEB on October 23, Deloitte said it is pleased to have been able to resolve this matter with the PCAOB.
"As acknowledged in the PCAOB's order, in response to the 2008 one-year suspension of one of our professionals, Deloitte took several significant actions to restrict the deployment of this individual," the statement said. "However, we recognize more could have been done at that time to monitor compliance with the restrictions we put in place. The robust policies and monitoring procedures we have since instituted fully address the issue and will prevent a similar matter from arising in the future."
PCAOB Enforcement staff members Michael Plotnick, Michael Rosenberg, Natasha Guinan, and Pamela Woodward conducted the PCAOB investigation and litigation.
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